Equity Release With Bad Credit

Equity release with bad credit

This page was last updated in July 2022

Equity Release With Bad Credit In 2022

If you have ever tried to get a loan with bad or adverse credit, you will know that it is usually very challenging. Banks and credit card companies make it difficult for anyone with previous credit issues to be accepted for any kind of loan.

However, equity release is different. Since the loan is secured against your home, the lenders consider it highly unlikely that you will be unable to pay them back. If you are looking to apply for equity release with poor credit, you may find that it is much easier than you would expect.

Topics that you will find covered on this page

You can listen to an audio recording of this page below.

How does equity release work?

There are two main types of equity release product; a home reversion scheme, and a lifetime mortgage. In the former, you sell some or all of your home to a provider and in return get to live rent free in your home for the rest of your life.

The latter is the more common option, and involves a lifetime mortgage in which the loan is secured against your home. Unlike standard mortgages, there are no monthly repayments to be made, so you cannot default on the lifetime mortgage

This means that providers will be more willing to lend to you. The outstanding mortgage, along with any interest accrued, is paid out of the property value when the house is eventually sold, upon the death of the property owners.

Both ways of releasing equity allow older homeowners to free up a lump sum to spend on home improvements or other expenses in their retirement. 

Make sure to only ever use equity release lenders who are regulated by the Financial Conduct Authority and the Equity Release Council. This way, you will benefit from a no negative equity guarantee which means that you will never owe more than the value of your home. 

Take our 5 question quiz and see if you are eligible for equity release

Why do equity release providers perform a credit check?

Since your home is the primary security for the equity release, the lender needs to make significant checks into your title deeds to make sure that you own the property and that the property does not have any other debts secured against it.

They will also check whether you have any other unsecured debts to your name. This is to make sure that you are not at risk of creditors forcing you to sell your house to pay their debts.

The lenders are lending money over a longer period of time than most other forms of finance. Therefore, they want to make sure that you have the best chance at being able to pay them back along with any interest accrued.

Along with these checks, they will also look at your property in detail to make sure that it is suitable security for an equity release loan.

When are the credit checks performed?

The credit checks in question will most likely be carried out as part of the initial equity release application checks. If they happen to come across any credit issues, the lender may only make the formal mortgage offer on the condition that any outstanding debts are repaid as part of the equity release.

Often these debts will be repaid before you are transferred any of the released money. It is likely that your equity release lender will perform an additional check on you before any funds are actually released.

What do the checks involve?

The first thing that your equity release providers will check is the title deed. They will check that you own it in full and then check for any debts secured against it.

The next thing that they will check is your credit history and whether there is any bad or adverse credit to be spotted on your credit file. They will check for any debts which creditors could force you to secure against your property via a court order. 

How does bad credit affect equity release?

People often wonder what ‘bad credit equity release’ looks like in practice. In general, a bad credit rating should not have too much of an impact on your ability to get an equity release loan, as you do not need to complete an affordability assessment. What it may affect however, is the interest rate that you get offered. The interest rate tends to be higher, the worse credit you are found to have.

A few of the different forms of debt are listed below along with an explanation of how they will affect your equity release application.

Credit card debt

Credit card debt is one of the most common debts that people are found to have. They often cause people a lot of trouble when they go to take out a loan. The good news is that since there are no compulsory monthly payments to make with an equity release plan, your credit card debt will not be a deciding factor. You can choose to pay interest each month on an interest only mortgage, but most plans will allow you to stop paying these at any time and the accumulated interest will be added to your total debt.

i have equity but bad credit

Credit card debts are unsecured so they should not pose a risk to you being able to pay back the equity loan through the sale of your house. You can choose to repay your credit cards with the equity release funds but it will be your responsibility to choose to do so. You should contact a financial advisor if you are considering taking this course of action.

CCJ

CCJs (or County Court Judgements) are another thing that lenders may look for during their credit check. If a CCJ is found, one of the conditions of the loan will likely be that it has to be settled before any money is released. Depending on the amount owed, you may be required to settle them yourself, after the money has been released.

The best thing to do if you are worried about your CCJs is to be honest and upfront about them. Mention them to your financial advisor, if you have one, and don’t withhold the information from your prospective lender. If the lender finds out that there were undeclared CCJs, they may choose to terminate the plan.

"Make sure to only ever use equity release lenders who are regulated by the Financial Conduct Authority and the Equity Release Council. This way, you will benefit from a no negative equity guarantee which means that you will never owe more than the value of your home. "

Arrears

If you have arrears or missed payments, you will likely still be accepted for an equity release plan. Any debts that are secured on your property, such as an outstanding mortgage, must be repaid in full.

If you have a large number of unsecured debts, the lender may make it a condition that you must pay them off. You can do this with the money released from the equity release plan.

IVA

If you have debts and you have an IVA, you will still be able to apply for equity release. But once, again, the lender will require that you settle the IVA in full. Depending on the lender, this will either be on completion of the deal or before the application is sent.

can you pass a credit check with an iva

Over 55 and a home owner? Try our equity release calculator and see how much money you can get from your house, tax-free, in 30 seconds

Charging Order

A charging order is when your creditor makes you secure your debt against your property by means of a court order. Any charging orders will be visible on your title deeds and you will need to satisfy these as part of the equity release agreement. As long as you get it sorted, you will still be able to get approved for an equity release order if you have a charging order on your home.

Bankruptcy

Bankruptcy is another issue that will be taken seriously by your prospective lenders. If you are not yet discharged from bankruptcy, you will not be provided with an equity release plan.

Usually, you will be discharged from bankruptcy after one year but it will stay on your credit file for six years. The best thing to do is to declare everything to your lifetime mortgage advisor and your potential lender as soon as possible and allow them to make the decision whether or not you will be able to get equity release funds. 

What happens if I have no credit score?

If you find yourself in the position of applying for an equity release plan with no credit score, you are not alone. Rest assured that this will not impact your eligibility for equity release schemes.

What will happen is that the lender will simply check your ownership status on the title deed and the application can proceed as it would do if you had a good credit score.  

How to prepare for your application

First things first, if you are looking to release equity, you should make sure that you only ever consider equity release products from a lender regulated by the Financial Conduct Authority/a member of the Equity Release Council. This will mean that they are subject to certain conditions in the way that they operate and you will receive additional guarantees.

Once you have looked around for a lender that offers equity release plans most suited to your requirements, you should take the following steps.

can you be refused equity release

First, try to get a copy of your credit report from a credit reference agency online. Make sure that you have updated your address on all the key documents such as your bank statements, credit card and electoral roll.

Next, you need to make sure that you are prepared for all eventualities. Have a good look at your financial links to make sure that you are not connected to anyone with bad credit. Getting the credit reference agency to remove these bad credit links can take time so make sure that you do it as early as possible.

Remember that mortgage brokers will charge fees and this may come in the form of a percentage of the loan amount or it could be a fixed fee.

Finally, it is worth getting lifetime mortgage advice from mortgage experts about your personal situation before you approach the equity release provider. They will help you know whether you are ready to make your application and whether you have chosen the right plan for you.

Other reasons why your application might fail

Now that we have established that your poor credit rating should not hinder your application too much, as long as you take care of any outstanding debts, we shall take a quick look at some of the other reasons why you might find yourself refused equity release plans.

The main reason why your application could fail will be to do with your property. The property is the most important part of the plan and therefore needs to live up to certain standards. It must therefore be above £70,000, conform to building rules and regulations, be in good overall condition and have generally good saleability. 

You could check with a surveyor to see if there is anything you could do to improve the chances of your home being accepted as security by the lender, such as carrying out essential repairs. 

is equity release good or bad

How does equity release affect tax and benefits?

You should be aware that home equity release will affect your eligibility for tax credits and other means tested benefits. This is because the money released counts as money in your savings and this can change what you are entitled to. Speak to a financial advisor to better understand whether this will be an issue for you.  

The good news is that your state pension won’t be affected as this is not means tested. As long as your National Insurance contributions are satisfactory, you should still receive your state pension after equity release.

Some people release equity in order to avoid paying as much inheritance tax. This is because if you release money early enough, you can gift it to your children tax free, and reduce the value of your property at the same time. This could bring your property value below the threshold for inheritance tax, but this will depend on your personal circumstances. 

Alternatives to equity release

It may be that you are keen to free up some cash in your retirement but you are not sure that releasing equity is the right option for you. There are a couple of other options that you can consider before signing up to a home reversion plan or a lifetime mortgage deal.

You could simply remortgage your house to take advantage of lower interest rates with another provider, and get off your existing mortgage lender’s standard variable rate. This is a good option if you are still happy making monthly payments on a mortgage plan and you are not after an immediate lump sum payment, such as you might get from a home equity loan.

You could consider downsizing. If you are not opposed to moving house, you could move into a smaller home or a home in a cheaper area and use the sale proceeds to pay off your debts or pay for whatever else you are saving up for.

However, you should be aware that you may run into issues getting a standard mortgage on a new house if you have bad credit history.  Getting approved for lifetime mortgages can sometimes be the easier option. The same can be said for other finance options as many other lenders will look at your credit score to assess your ability to make regular monthly repayments.

You could consider seeing whether you are eligible for any government grants before equity release. Remember that these may not be available to you after you have chosen to get an equity release product. You should therefore receive advice on the potential implications of home reversion schemes and lifetime mortgages before committing to one.

Over 55 and a home owner? Try our equity release calculator and see how much money you can get from your house, tax-free, in 30 seconds

See how much money you could be entitled to using the equity release calculator below

 

Want to find the best equity release deal or speak to a specialist to have your questions answered?

You can contact Key Equity Release, our partners, in one of 3 ways.   

  • Option 1 – Call directly on – 0333 567 1607
  • Option 2 – Book an appointment directly in the calendar below, and one of the Key team will call you back at your chosen time to discuss your requirements
  • Option 3 – Leave your contact details below and we will get in touch with you.

 

Option 1 – Call directly

Mon – Thurs – 9am – 8 pm

Friday – 9am – 5:30pm

Saturday – 9am – 5pm

Option 2 – Book an appointment, in the calendar below, for an equity release specialist to call you back when its convenient

Option 3 – Leave us your details and we will get in touch

Leave your contact details below and one of the equity release team will give you a call to discuss your needs.

Please note that all calls are undertaken by Key Equity Release, the UK’s leading equity release specialists. Key Equity Release is a trading name of Key Retirement Solutions Limited which is authorised and regulated by the Financial Conduct Authority

Article author

Katy Davies

I am a keen reader and writer and have been helping to write and produce the legal content for the site since the launch.   I studied for a law degree at Manchester University and I use that theoretical experience, as well as my practical experience as a solicitor, to help produce legal content which I hope you find helpful.

Outside of work, I love the snow and am a keen snowboarder.  Most winters you will see me trying to get away for long weekends to the slopes in Switzerland or France.

Email – katy@helpandadvice.co.uk

Frequently Asked Questions

How does equity release work?

There are two main types of equity release product; a home reversion scheme, and a lifetime mortgage. In the former, you sell some or all of your home to a provider and in return get to live rent free in your home for the rest of your life.

When are the credit checks performed?

The credit checks in question will most likely be carried out as part of the initial equity release application checks. If they happen to come across any credit issues, the lender may only make the formal mortgage offer on the condition that any outstanding debts are repaid as part of the equity release.

What do the checks involve?

The first thing that your equity release providers will check is the title deed. They will check that you own it in full and then check for any debts secured against it.

The next thing that they will check is your credit history and whether there is any bad or adverse credit to be spotted on your credit file. They will check for any debts which creditors could force you to secure against your property via a court order. 

What happens if I have no credit score?

If you find yourself in the position of applying for an equity release plan with no credit score, you are not alone. Rest assured that this will not impact your eligibility for equity release schemes.

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